FocusEurope Nov MPGI spot falls close to upstream propylene CP levels

23 November 2012 16:25[Source: ICIS news]

LONDON (ICIS)--European monopropylene glycol industrial grade (MPGI) spot prices in November are coming close to a critical point in terms of profitability, as they fall down to a similar level to the upstream propylene contract price, market players said on Friday.

A much needed significant uptick in winter demand from the downstream de-icer and antifreeze sectors or some upstream feedstock relief is needed to help restore MPGI profitability.

“MPGI prices are crazy, there is no real difference between (MPGI) spot and feedstocks - almost the same price,” said one MPG producer.

In week ending 23 November, MPGIspot prices were steady-to-lower, depending on source and starting point. There was talk of some slight price softening, particularly at the upper end of the range, because of subdued general demand and good supply. Prices were discussed either side of €1,200/tonne FD.

Sources said MPGI numbers were discussed as low as €1,150/tonne FD and up to €1,230-1,260/tonne FD, but there was insufficient market confirmation to substantiate this as a general market level.

Producers have struggled with profitability from MPGI throughout the year. Many found it difficult to pass on the feedstock-related increases earlier in 2012 when propylene costs went up because demand from the main downstream unsaturated polyester resin sector has been subdued.

When the trend in propylene costs changed in October 2012, MPG producers managed to keep MPGI prices relatively steady, but so far in November they have been forced to give away the full feedstock decrease and in some case evern more. This is because of on-going soft demand, which is further worsened by the reluctance to buy anything additional at year-end for working capital reasons.

MPG production rates are also providing producers with more headaches. Low profitability and subdued general demand has led to some production cuts, depending on downstream portfolio and variation in price level. However, this has not happened across the board because MPG producers generally need to be ready for any seasonal demand, which is likely to materialise over the winter months.

Producers and re-selling sources suggest there is an urgent need to offset the low MPGI spot prices either in terms of a significant uptick in de-icer or anti-freeze demand otherwise more widespread production cuts may be necessary .

“In the coming couple of weeks something needs to happen, de-icer either kicks in and can restore profitability or production cuts," said one seller.

A possible fall in the upstream propylene market could also help provide some margin relief for MPG producers. One manufacturer said that it needed to be a sizeable reduction for propylene for there to be any real relief for MPG manufacturers otherwise it will only take their margin situation from “disastrous to less disastrous”.

Some sellers concede it could be difficult to retain any possible feedstock-related reduction in December with low general demand at the year-end, unless there is a big seasonal boost to demand.

Both buying and selling sources said MPG prices could increase over the next few months provided there is a significant increase in winter season demand over a prolonged period. While most players said there is some de-icer and antifreeze activity, it is nothing considerable because temperaturesremains mild in Europe.

However, a few producers said they had seen good winter season demand and were keeping their prices largely in the €1,200s/tonne FD. One of the producers said it had already sold 100% of its volumes for November and said its been the best month in terms of demand since January last year, adding that its demand was up by around 30% compared with its summer of 2012. However, this view was not widely confirmed in the market.

Sources have largely described the MPG market as balanced-to-long. There was also news of the recently completed expansion ofDow’ MPG facility in Stade, Germany, meaning the company has increased its capacity by 10,000 tonnes/year, taking nameplate MPG capacity at the site to 290,000 tonnes/year.

Players said they had not seen any evidence of the additional capacity in the market. Other producers said it was a relatively insignificant increase in terms of Dow’s overall nameplate capacity adding that they did not expect any real impact on the market. They expected this expansion would increase Dow’s MPG flexibility during the winter de-icer season, as the company is a main player in this end-sector. Dow was unavailable to comment.

Buying and reselling sources said there was no real need for any additional capacity in the MPG market in terms of general demand, which remains economically and seasonally subdued.